Can interest on a loan exceed the principal amount of the loan: what the law says

The question of whether interest can exceed the principal worries many borrowers—especially with microloans and consumer loans, where annual rates can reach dozens or even hundreds of percent. It’s important to know that Ukraine has statutory limits on the total cost of borrowing, and these depend on the type of credit.

At the same time, lack of awareness often leads people to accept extortionate terms without realizing that the lender may be breaking the law. That’s why you should review the applicable legal rules before signing any agreement.

What the law says about limits on loan costs

To clarify what limits apply to different types of loans and penalty charges, here is a summary table. It helps you quickly see the maximum amounts allowed by law and spot potential lender violations.

Double cap (principal ×2) for consumer credits and microloans

Under the Law of Ukraine “On Consumer Lending,” the total amount a borrower must repay on a consumer loan may not exceed twice the amount of the principal received. This rule is especially relevant for short-term loans and microcredits that often carry high daily rates.

For example, if you took ₴10,000, the lender cannot demand more than ₴20,000, including interest, fees, and any other contractual charges. The cap protects consumers from excessive debt burdens.

Note that this limit applies not only to interest but also to any additional contractual charges.

Limits on fines and penalties — up to 50% of the principal

The law also sets clear limits on sanctions: the amount of fines and late-payment penalties cannot exceed 50% of the principal. So if the principal is ₴10,000, the maximum fines and penalties are ₴5,000, even if the delinquency continues for a long time.

This cap applies regardless of what the contract says, since the law aims to prevent sanctions from exceeding the loan itself.

Exceptions to the rules

Mortgages, auto loans, business loans

The double-cap rule does not apply to loans secured by real estate or vehicles, or to loans for entrepreneurial activity. Here, the terms depend on the contract, and total interest over the life of the loan can significantly exceed the principal—especially with long-term loans.

For example, on a 20-year mortgage the interest paid over the entire term may be several times the principal. In such cases, you should assess not only the rate but also the total overpayment. Banks often use differentiated schedules where early payments go mostly toward interest.

Special wartime conditions (interest may accrue, penalties may be waived)

During martial law, additional borrower protections apply. Many lenders temporarily do not charge fines or penalties for delinquency, although interest continues to accrue under the contract.

Some banks offer restructuring or “payment holidays” for war-affected borrowers to reduce financial pressure. There have also been statutory limits on forced asset recovery for certain borrower categories, further protecting them from losing homes or business assets.

Court practice

Daily-rate cap — not above 1% and penalties — up to 50%

Courts often side with borrowers if a lender violates statutory caps. For instance, in microloan cases, courts strike down terms where the daily rate exceeds 1% or the total cost far surpasses twice the principal. If fines and penalties exceed 50% of the principal, courts reduce them to the legal maximum or cancel them. Expert calculations showing the excess are key in such cases.

More examples from case law and legal commentary can be found in our thematic posts on the legal blog, where current credit disputes are regularly analyzed.

Interest vs. penalties — what’s the difference

Interest is lawful but can be large (mortgages, etc.)

Interest is the price of borrowing money and is lawful if set under the contract and applicable law. In long-term loans like mortgages, the total interest over the term can exceed the principal, and that is not a violation. However, excessive rates in short-term agreements may justify challenging unfair terms.

Fines and penalties have strict caps

Fines and penalties are sanctions for non-performance or improper performance. They are strictly capped by law: no more than 50% of the principal.

This rule applies even if the contract stipulates higher amounts — such terms are automatically invalid.

For convenience, here’s a table showing key differences between interest and sanctions, their legal limits, and their impact on total debt.

What to do if you have doubts

Review the contract, APR, fines, penalties

Before signing, always check the APR (real annual percentage rate) and how interest and penalties are calculated. This helps avoid unpleasant surprises. It’s also useful to verify the lender in the NBU’s register of financial institutions.

Contact the NBU / financial ombudsman

If you believe the lender violates the law, you can file a complaint with the National Bank of Ukraine or the financial ombudsman. They can review compliance by financial institutions and require violations to be remedied. Such complaints often resolve issues without court proceedings.

Legal advice

If you’re unsure about your rights or the terms, consult an attorney for credit matters who specializes in these disputes. A specialist can explain the rules, review the contract, and propose a defense strategy. Even one consultation can help you avoid significant costs.

FAQ

Can interest exceed the principal?

For consumer loans and microloans — no: the total debt cannot exceed twice the principal. But for mortgages, auto loans, and business loans — it can, if provided for in the contract.

What about fines and penalties?

Fines and penalties cannot exceed 50% of the principal regardless of the loan type. This rule is mandatory and cannot be altered by agreement.

What if the caps are violated?

Collect evidence (the contract, statements, calculations) and contact the NBU or a lawyer. If needed, you can file a lawsuit to reduce the debt.

Legal assistance

The “Pravovyi Lider” legal team specializes in credit disputes and borrower protection. We help challenge unlawful contract terms, reduce debt amounts, and cancel illegal penalties.

The team has experience with both bank loans and microloans, including complex litigation. Clients receive end-to-end support — from document review to courtroom representation. This approach protects rights and significantly reduces the financial burden.